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click here for Credit Policies of 1999-2000, 2000-01, 2001-02, 2002-03, 2003-04, 2004-05, 2005-06

Macroeconomic and Monetary Developments First Quarter Review 2005-06

The highlights of macroeconomic and monetary developments in the first quarter or Q1 (April-June), 2005-06 are:

I. The Real Economy The cumulative rainfall recorded during June 1 to July 13, 2005 was one per cent above normal as against 10 cent below normal a year ago.

Industrial production was buoyant and broad-based in April-May, 2005 with growth accelerating in the manufacturing sector.

Lead indicators point to robust services sector performance in Q1, 2005-06.

The generally positive developments in agriculture, industry and services coupled with upbeat business confidence have imparted optimism regarding growth prospects for 2005-06.

II. Fiscal Situation

In April-May, 2005-06 the Centre's revenue deficit and the primary deficit were placed lower than their levels a year ago as proportion to budget estimates.

During the first quarter of 2005-06 (April-June), gross and net market borrowings raised by the Centre amounted to 29.7 per cent and 30.9 per cent of the budget estimates.

States raised an amount of Rs.10,245 crore (Rs.7,554 crore through tap sale and Rs.2,691 crore though auctions).

The weekly average utilisation of WMA and overdraft by the States was significantly lower than a year ago.

III. Monetary and Liquidity Conditions

Up to July 8, 2005 money supply expansion at 13.9 per cent remained well within the indicative trajectory (14.5 per cent growth) set in the Annual Policy Statement.

Reserve money increased by 18.1 per cent up to July 15, 2005 as banks unwound LAF positions and withdrew liquidity to finance the higher demand for credit.

IV. Price Situation

Inflation remained firm worldwide in Q1 of 2005-06, driven up by high and volatile international crude oil prices.

Producer prices continue to lead consumer prices in most economies, reflective of the supply-side character of inflation.

International oil prices reached new highs, crossing US $ 62 per barrel on July 7, 2005.

In India, supply-side pressures on inflation conditions in April 2005 eased in May and June pulled down by the base effect of higher prices last year as well as various monetary and fiscal measures to stabilise inflation expectations.

Despite increases in electricity and petrol and diesel prices during June 2005, year-on-year wholesale price inflation edged down to 4.1 per cent as on July 9, 2005, from 5.1 per cent at end-March 2005.

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Click Here For the First Quarterly Review of Annual Statement on Monetary Policy for the year 2005-06

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